There are two key factors impacting an investment's return - fundamental and speculation.
The fundamental factor reflects the returns (dividends, earnings growths) generated from the company's operations, the speculation factor reflects market participants' opinions about the stock which would drive the swings of stock prices. From the long term perspective, the fundamental factor will bring stable returns while the speculation factor will drive short term fluctuations.
John Bogle quantified the fundamental and speculation factors' impacts on stocks' returns in the following chart -
In our next blog post, we will discuss why people still speculate, despite the odds are not on their side.